Sanctions Over Nord Stream 2 Are Wrong On Many Levels

Construction site of the European natural gas pipeline EUGAL near Wrangelsburg (Germany) on 16.02.2019, this pipeline begins in Lubmin at the landing site of the Nord Stream 1 and 2 Pipline.

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Any day now, I expect TV ads from lawyers extolling a class action suit on behalf of people with neck injuries resulting from shaking their heads at politicians’ antics. The latest such move is the effort to deploy sanctions intended to block the Nord Stream 2 pipeline, carrying natural gas from Russia to Germany. As the saying goes, it is wrong on so many levels, but a perfect example of what Congress should not be doing. (Ultimately, it may be necessary to develop an app that allows companies to know whether any given transaction can be connected to a politically unpalatable person or activity. Perhaps to could be called Seven Degrees of Vladimir Putin.)

Use of an economic weapon to achieve political goals is hardly new and goes back (in this country) to the Boston Tea Party, when colonists embraced the idea that American markets were so important to England that an economic boycott would force King George to accede to their demands. (French military might proved more salient in that regard; a note to all patriots who demean French military abilities.) The tactic was also employed prior to the War of 1812 and by Southerners during the Civil War, when they thought that English reliance on their cotton would yield political support for their secession.

But in recent years, economic sanctions have been increasingly imposed by the U.S. government on subnational entities, such as leaders, prominent individuals and commercial firms, as well as on behavior that takes place outside the U.S. borders. Many feel the latter is illegal under international law, but such is the economic power of the U.S. (and its financial system) that many conform to the sanctions regardless. Case in point: the Trump Administration’s sanctions against Iran, which many of our allies disagree with and would like to circumvent. However, they are finding it difficult to convince commercial entities to take the risk of ignoring them.

in some ways the growth of economic sanctions is reminiscent of earlier, often military, interventions in Latin America, where U.S. governments thought to “fix” political situations, best exemplified by Woodrow Wilson’s failed intervention in Mexico. It is now regarded as one of his biggest mistakes, not because of the goal, establishing democracy in Mexico, but because it represented over-reach, both in terms of cost and the nanny-type intent—we’ll decide what government you should have.

Another aspect of the bills that disturbs me: the proposed sanctions against companies involved in Nord Stream 2 look like political posturing, since the pipeline is already near completion. Such behavior is hardly new to Congress, where members often introduce bills that they have no real hope for, but which allows them to tell voters, “I introduced a bill to guarantee that all dogs are finally getting enough cheese!”

Even bills that are appear dead on arrival have an impact, something politicians tend to ignore. Words have consequences, as the saying goes, and introducing an element of uncertainty into economic activity always creates costs. Worst case scenario in this instance: someone builds an LNG export terminal thinking that the Congress will create demand for U.S. LNG in Europe by keeping out Russian gas but ends up disappointed.

And putting on my gray-haired-guru hat (made in China), I would hark back to the earlier version of this debate. “A single Soviet-sponsored move in the horn of Africa, accompanied by a threat of cutoff of the new Kremlin natural gas pipeline, would force Europe to its knees in any major East-West confrontation.” That was New York Times columnist William Safire in 1982 (whatever happened to the Horn of Africa?). I would note that despite the much greater economic interactions Europe has with Russia beyond energy trade, the countries have not been shy in standing up to that nation.

Supporters of the sanctions bill, such as Senator Ted Cruz, should consider that, although they are appearing to be tough on Russia, they are going against their traditional conservative values, both by trying to micromanage economic activity and by posing as a nanny, not to individuals, but telling other nations who to engage in their business.